Banks see improvement, just 11 of 75 unprofitable

St. Louis banks are in better shape than they were nine months ago, with only 11 of 75 commercial banks based here reporting losses through the third quarter, compared with 23 of 79 at the end of 2009.

“Banking conditions have stabilized — for some, not all — but at a weak level,” said Julie Stackhouse, senior vice president of bank supervision and regulation at the Federal Reserve Bank of St. Louis. “But it’s fair to say that significantly fewer banks are losing money, and that’s a good sign.”

One reason, she said, is that banks recognized their problem loans in commercial real estate early and wrote them down to market value.

“There’s not as much fear in the marketplace,” said Rick Bagy, president of First National Bank of St. Louis, which reported a profit of $13.5 million year to date. In addition, he said, earnings are being boosted by strong business in mortgage refinancings and by good net interest margins at banks with few problem loans or nonperforming assets.

WestBridge Bank & Trust, which failed Oct. 15 and was taken over by Midland States Bank of Effingham, Ill., also reported a loss of $3.5 million through Sept. 30. With WestBridge included, year-to-date losses at the banks totaled $42.5 million through Sept. 30, compared with losses of $238.3 million a year ago.

Three other banks were based here a year ago, but no longer are. Southwest Bank merged with its parent M&I Bank, which is based in Milwaukee, and Champion and Gateway banks also failed in the last year and were acquired by banks based elsewhere.

The fact that banks have written down many problem loans may bode well for future consolidation, Stackhouse said. Historically, “acquirers are more comfortable entering the market because they’re more confident the assets are valued fairly,” she said, though it remains to be seen whether that happens this time. Another thing to watch is whether companies start buying distressed real estate to hold for investment, she said.

The bad news is that nonperforming loans, and foreclosed property that the banks are stuck with, remain stubbornly high as a percentage of total loans — 6.65 percent though Sept. 30, Stackhouse said. That percentage falls to 4.43 percent without First Bank, which is by far the largest in the group, with $7.8 billion in total assets. While 4.43 percent is high historically, it’s less than the 5.91 percent nationally, she said.

Also encouraging, Stackhouse said, is a recent Fed survey of senior lenders, which found that banks are relaxing standards a little bit for commercial and industrial loans, although a return to the standards that existed before the financial crisis is not expected for the foreseeable future.